Inflation will fall, the economy will overcome the crisis, says the forecast of the banking association

“American inflation is not falling at the beginning of the year as expected,” began Jakub Seidler, CBA’s chief economist, looking abroad. “Developments abroad have shifted slightly in an optimistic direction in recent months, which cautiously improves the outlook for foreign demand and allows for improvement in the growth of the domestic economy,” he added.

The Czech economy should finally overcome the pandemic crisis and the pre-pandemic level in this quarter. GDP growth is expected to be 1.4 percent this year, and 2.6 percent last year.

“For this year, the CBA agreed on economic growth of 1.4 percent. It’s a slight positive upward revision,” commented Helena Horská, Chief Economist of Raiffeisenbank, on the positive outlook. According to her, growth will be based primarily on growth in household consumption as well as growth in investments and exports. For next year, CBA predicts growth of 2.7 percent.

Inflation is forecast to fall to 2.3 percent this year, and should remain similar next year. Inflation is currently forecast to be low due to several factors. This is, for example, a relatively sharp drop in year-on-year food prices. “The numbers look good at the moment, it creates room for interest rates, which we think could go down,” says Jan Bureš, Patria Finance’s chief economist.

The CNB should continue to reduce rates, they should reach four percent by the end of the year. “The question is what impact they can ultimately have on the economy, whether in terms of investments in the real estate market or in other parts of the economy,” adds Bureš.

The labor market is in good shape

The labor market remains in relatively good shape. The growth of real wages will reach almost four percent this year, while nominal wages will increase by six percent this year. “Low inflation will allow real wages to grow,” says Helena Horská. The unemployment rate is the lowest across EU countries. The share of unemployed people this year should rise by 3.8 percent.

According to her, investments in the real estate market are a moderate risk. The pressure for efficiency and competitiveness, combined with the reduction of energy costs, pushes companies to invest. The forecast expects interest rates to fall, albeit at a slow pace. “Probably 2025 will be the year when the real estate market experiences a visible positive impulse,” adds Horská.

From the point of view of industry, there are significant differences, some sectors are stumbling, others are the drivers of the domestic economy. However, the automotive industry continues to be a strong sector.

“We are still quite skeptical about how the industry and especially the automotive industry will be able to stimulate the growth of the industry as a whole. Last year, it contributed quite significantly to the overall growth, but we still believe that the possibilities of such a dynamic contribution are largely exhausted for this year, although the numbers at the beginning of the year were positive,” says Jakub Seidler.

Jan Bureš also expressed an estimate as part of the outlook for the exchange rate. “We assume that the koruna will only gradually strengthen.” The average value for this year should therefore remain above the 25 CZK per euro threshold, and slightly below this threshold next year.